Business Growth Strategy of Apple

Author- | Posted- | Updated: October 15, 2020 |
Apple Products: Image source: Pixabay.

Apple (NASDAQ: AAPL) is currently the largest tech brand globally, and the first tech company to touch a market cap of $2 Trillion. The company experienced fast growth in its market cap during the lockdown. After sliding briefly to below $2 trillion in Sep, its market cap in October has again surged to past $2.1 Trillion. Apple’s iPhone is its core product and main source of income. iPhone’s popularity globally continues to surge. However, the share of revenue that the company generates from services has also continued to rise.

The pandemic has put the resilience of smartphone brands to test worldwide. Still, Apple proved itself the most resilient of all smartphone makers, a large number of which saw shipments and sales tumbling down. While many other smartphone brands experienced very sharp declines in their market share and number of shipments, Apple’s position remained nearly unaffected. The two largest players in the smartphone industry and Apple’s leading competitors, including Samsung and Huawei, experienced sharp declines in shipments. Still, Apple’s shipments during the half of 2020 were down only by just one million compared to the previous year. Apple’s focus on innovation has helped it gain market share faster. The company continues to release newer iPhone models, which are more efficient and faster than the older models. However, to gain sales, the company also released a slightly lower-priced iPhone version – the iPhone SE. The result was that even during the pandemic, it could successfully maintain its sales level. Apple is an outstanding company in various regards. Apart from product quality, customer experience, and innovation, it is also outstanding in marketing. Its superior brand image is also a  critical source of competitive advantage for the brand and helped it find faster growth worldwide. We will look at Apple’s primary growth strategies to grow its influence and share in the global market in this post. However, prior to that let’s take a look at the target market of Apple or who the customers of Apple are.

Apple Inc’s Target Customers

The core product and main source of revenue for Apple is the iPhone. The iPhone users worldwide are the main target market of Apple. Apart from its iPhone sales, Apple is also generating a significant portion of its revenue from services delivered mainly through its smartphones. Statista estimates that the percentage of iPhone users among all the smartphone users in the United States, which is the core market of Apple is 45.3%. Overall more than 250 million people in the United States use a smartphone of which 100 million are iPhone users. Apart from that, Apple has sold more than 1.5 billion iPhones since 2009 which makes it one of the most used smartphone brands in the world. In the United States, Apple’s iOS has a more than 50% share.

While the core target market of Apple iOS and Android are similar, and millennial users form the largest user base of both operating systems, a significant part of Apple’s user base also includes people above 35. However, compared to Android, the Apple users are more affluent as well as highly educated. The iOS users had a median salary above $53K according to a study conducted in 2018 compared to around $37K median annual income of Android users. Apple makes and sells premium products mainly and targets the higher end of the market. It is why, its customers are the affluent shoppers that make repeat purchases, are more loyal and will regularly update their iPhone models. They are also more likely to buy the services offered by Apple. Millennials are the largest target market of Apple, but its customer base also includes a large batch of affluent baby boomers from the urban population. The study also discovered that the Apple users are more engaged compared to the Android users and spend more time with their smartphones daily. Millennials stand out from the rest of Apple’s user base because of their heavy technology usage. They are the biggest set of consumers of technology services and also among the largest group of smartphone users. These features make them the largest and smartest among the users of Apple products including iPhone, Mac, and other products including services.

According to a research study by Pew Research Center carried out during early 2019 in the United States, millennials were the largest target customer segment for technology brands. While they stood out for their technology usage, the elder groups were also growing more active on the internet and in terms of technology use. According to the study, 93% of the millennials owned and used smartphones. While around 100% of the millennials are now internet users, 19% of them use internet-only on smartphone devices. However, around 91% of GenXers and 81% of Baby Boomers also use the internet. Apple’s target customers are the affluent urban users with higher median income and higher education. They are tech-savvy and ambitious, students and professionals, and a larger number of them are male consumers compared to females. In recent years, Apple is also targeting the big base of educators and students from worldwide through its products and services for digital education.

Apple business strategy: a case study
iPhone buyers are mainly affluent urban customers. Image source: Pixabay.

Main Pillars of the Business Growth Strategy of Apple

Product Innovation:

Technological innovation is one of the primary sources of competitive advantages and the main strategy driving Apple’s superior growth in all these years. Since its foundation, Apple is known to be a highly competitive and innovative tech brand. Since the times of Steve Jobs, the company maintained an aggressive focus on developing innovative products that stood out from the crowd. It is a premium brand that creates products mainly for the higher end market. From Mac to iPad and the iPhone, its products are known for their extraordinary performance and efficiency and a highly differentiated user experience. While the other tech brands also invest heavily in technological innovation, Apple enjoys a superior position in the industry. Its iPhone is its core strength and a highly innovative product. However, over time the company has also released new services to reduce its dependence on iPhone sales. Its products’ popularity has sustained over time because it has continued to improve its existing products, including the iPhone, Mac, and iPad. The latest models of these products are equipped with innovative chips that deliver superior performance and better suit the needs of developers and programmers. Its focus on product quality and performance continues to drive user loyalty and global popularity.

Apple has also continued to grow its spending on research and development. In fiscal 2017, the company spent $11.6 billion on research and development, which grew to $14.24 billion in 2018 and then $16.22 billion in 2019. Again in 2020, its research and development expenses are expected to surge. During the first three quarters of 2020, the company has already spent around $13.8 billion on research and development compared to $12.1 billion during the same period the previous year. Its overall research and development expenses for 2020 are expected to be higher than $18 billion. Apple has to invest considerably in R & D each year because there is heavy competition in the smartphone and digital technology industries. Maintaining sales, revenues, market position and overall popularity requires an aggressive focus on product quality and customer experience. It is why Apple has to stay dedicated to innovation and continuously improve its products and services.

Expanding services portfolio:

Apple’s core product is the iPhone, which accounted for more than 54% of the company’s net revenues in 2019. Out of the net $260.2 billion that the company generated in the form of net revenues in fiscal 2019, it generated around $142.4 billion from the iPhone’s sales solely. So, fluctuations in iPhone sales can have a significant impact on the revenue of the brand. As a result, the company is also focusing on other areas to reduce its dependence on the iPhone’s sales and create new growth channels. Among the most significant segments that have helped Apple grow its revenues are services. The company’s net revenue from services was higher than any other product segment except the iPhone in 2019. Apple’s revenue from the services segment has also grown at a swift pace. 

In 2019, the services revenue of Apple grew by 16% compared to the previous year. Total revenue from services at the year-end reached $46.3 billion in 2020, rising from $39.75 billion in 2019. Another important segment that has also experienced rapid growth in sales and revenues is wearables, home, and accessories. Apple’s revenue from this segment grew by 41% compared to the previous year. In 2019, Apple’s revenue from wearables home and accessories grew to $24.5 billion compared to $17.4 billion during the previous year. These two segments together accounted for around 27% of the net revenues of Apple during 2019. Apple has sustained its growth momentum in 2020 as well. 

During the first three-quarters of the latest fiscal, its net revenue from services reached $39.2 billion compared to $33.8 billion in 2019. However, the company’s revenue from products also grew during the same period despite the pandemic’s impact. Apple’s net revenue from products during the first three quarters of 2020 reached $170.6 billion compared to $162.4 billion during the same period in the previous year.

Apple’s services segment has continued to expand and includes many services, including platforms to discover and download content like video games, apps, music, books, and podcasts. These platforms include the App Store, available on the iPhone and IPad, and Mac App Store, TV App Store, and the watch App Store. Apart from these, the company offers digital subscription-based streaming services like Apple Music and Apple TV+. iCloud is Apple’s cloud service, where users can store mail, music, documents, photos, etc. The company also offers some other services in some key markets like Apple Arcade, Apple Pay, and the Apple card.

Growth in emerging markets:

Apple  might have ignored the hidden potential of the emerging markets for long but not any more. In the first quarter of fiscal 2020, the company’s performance improved compared to the same quarter last year driven mainly by faster growth across the emerging markets. The main markets driving the growth of Apple’s revenue are the emerging markets like Brazil, mainland China, India, Thailand and Turkey.  While countries like China and India offer a large customer segment, their economies grew fast in the past few years leading to extra disposable income in the hands of consumers. The pandemic might have made economic activity decline in these markets but its impact has been higher on the higher end market and lower on the lower end market. Apple is a premium brand and it is why the pandemic did not have a strong impact on its performance. After China, Apple is focusing on the Indian market to grow its penetration and customer base in the subcontinent.

India’s importance as a market for Apple products has grown in recent years which was visible in Apple’s release of its online store in the market. In September, Apple opened its online store in India which brings a large range of products and services as well as other offerings that were previously not available to the Indian customers. The new Apple online store In India brings the sme premium experience that is available to customers in the Apple stores worldwide with Apple team members always ready to offer their expertise online. While this step is meant to strengthen Apple’s position in the Indian market, it is also a crucial step that will ensure Apple’s performance against its rival Chinese smartphone brands in India continues to grow better.

Marketing:

Marketing is also a critical source of competitive advantage and a core pillar of the company’s business strategy. For the tech brands, marketing and brand image are critical sources of advantage, and to grow their popularity and sales worldwide; companies need to focus on marketing and customer relations. Apple is a highly trusted brand, and its popularity worldwide has kept growing even after Steve Jobs. Since its foundation, the company is known for its innovative marketing strategy. However, Apple’s marketing strategy is much advanced and superior compared to rival brands. At the core of its marketing strategy is product quality. Due to their premium quality and outstanding performance, Apple’s products remain popular among users worldwide. Apple’s focus on innovation has also helped the company market a superior brand image and strengthen its popularity and market position worldwide. However, customer experience is also a critical factor that has helped Apple become the brand of choice for smartphone users in the US and other key markets. The company is strongly devoted to product quality and customer service. Since its foundation, the company is known as a fiercely customer-oriented and innovative brand. Overall, when it comes to marketing, Apple is considered second to none in the industry. 

Apart from the other things, it invests in CSR and sustainability to maintain a socially responsible image. One other critical factor is the trust that the customers place in Apple, resulting from its years of dedication to innovation and customer experience. The brand does not disappoint and has established itself as a distinct customer-oriented brand that offers a superior experience than others. The Apple physical and online stores are also a marketing channel for the brand, apart from being a sales channel. Apple does a lot of marketing from its physical stores, showcasing its products and services range before the customers. The company is also employing digital marketing channels and social media, including Twitter and YouTube, for the marketing and promotion of its products and services and to strengthen customer relationships. The company does not use Facebook for promotions, unlike most other US-based businesses. However, Apple’s popularity is centered on its product and marketing strategy, as well as the strong brand recognition it has earned over time. It employs a perfect marketing strategy that avoids any mess or delusion. The company believes in delivering what it promises and promising only what it can deliver.

Product quality & customer experience:

Superior product quality and customer experience are among the critical drivers of sales and revenue growth in the smartphone industry. These two factors can help a business generate stronger brand recognition and find faster sales and revenue growth. When it comes to product quality, Apple does not disappoint at all. Product quality and performance have remained the most central focus areas for the business since its beginning. Apple is a premium brand that makes products for the higher end market. It has created an ecosystem of compatible products that has continued to widen with Apple’s new services. The low or zero compatibility of its products with those made by the other brands offers it an additional advantage. In terms of customer experience too, the company has demonstrated higher dedication compared to other businesses. Apple is known for creating experiences and not just products. Its superior customer focus on customer experience differentiates the company from the other smartphone or technology brands. Since the times of Steve Jobs, Apple’s focus remained on innovation so that the company could differentiate its products and services from the rivals and offer its customers an improved experience. With time, while its focus on customer experience has continued to grow stronger, the company has also earned stronger brand recognition and has achieved a leading position in the technology industry. With a market cap of around $2 trillion, the company is the largest of all the tech brands worldwide. Apple has also proved that companies can win customers’ trust faster with a firm focus on product quality and customer experience.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.